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Ron Plain

We had a question this week about what the results would be if packers in the U.S. refused to kill hogs from Canada if there are no changes in the country of origin labeling which goes into effect in 2004. In our opinion, hog prices in the U.S. would increase 20 percent or more until the U.S. could increase production.

What are the possibilities that packers in the U.S. will refuse to kill hogs born in Canada? We believe the probabilities are very low for the following reason. If U.S. packers refuse to kill Canadian-born hogs, we would need to close a 15,000-head-a-day and an 8,000-head-a-day slaughter plant to keep slaughter capacity in balance with U.S. production or packers would likely look at red margins most of the time until U.S production increased.

The longer run results of U.S. packers not killing Canadian-born hogs would likely be for substantially more pork imports from Canada. We believe that the odds are low that the Canadian government would let the Canadian industry downsize to the extent of the live hogs they are currently exporting to the U.S.

We continue to get questions about and beliefs that hog marketings in recent weeks have been pulled forward due to the very mild weather prior to the last few weeks. Certainly, hogs will eat more and gain faster in cool weather than hot weather.

We do believe hogs have gained some faster this summer than last summer. However, the question is have we pulled marketings ahead or just have heavier hogs. We cannot develop information from hog producers that marketings have been pulled forward significantly. This week we talked to producers with over 1.5 million sows and only 1 producer was more current with his marketings now than at this time last year, and that was due to space requirements. Two other producers were not as current with marketings now as at this time last year.

Therefore, we hope some of the overrun in marketings relative to the expectations of the last several weeks has been due to faster rates of gain, but we doubt it has occurred to a significant degree.

In looking at slaughter seasonally, it is not possible to identify a year in the last seven years that marketings have been pulled forward significantly. There was one year with temperatures at Sioux City, Iowa, from May 15 to August 5 that marketings may have been pulled forward. However, we believe the major reason for the smaller fourth quarter slaughter that year was due to cyclical changes in production rather than weather.

Another reason we do not believe we are more current with marktings at the this time this year compared to 2002 is that we slaughtered over 25 percent of the 2002 slaughter in the third quarter last year, which does not occur very often.

Weights do continue to run above a year earlier. For the week ending August 21, barrows and gilts in Iowa-Minnesota were 2.7 pounds above a year earlier, which was down from 3.9 pounds above last year for the week ending August 16. Carcass weights for all barrows and gilts under federal inspection have been 2-3 pounds above a year earlier since early summer.

Slaughter this week continued to run below the recent high levels of a year earlier. The USDA estimate of slaughter this week was 1908 thousand head---down 6 percent from last year.

Cash hog prices were under pressure the entire week and prices this Friday morning were $3 to $5 lower than a week earlier. Top live prices this Friday morning for select markets were: Peoria $30 per cwt, St. Paul $32, Sioux Falls no test and interior Missouri no test.

The weighted average prices for carcasses this Friday morning were $3.21 to $5.03 lower than 7 days earlier. These weighted averages for 185-pound carcasses with 0.9-1.1-inch back fat, 6-sqare-inch loin 2 inches deep by area were: western Cornbelt $47.05, eastern Cornbelt $49.87, Iowa-Minnesota $47.87 and nation $48.34.

We certainly hope at least a portion of the unexpected large slaughter this summer has been due to earlier marketings from faster weight gains; if not, prices this fall are likely to be lower than we have been expecting.